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So, how does your economy grow?

Stopping the swirl down the drain

Friedman's complete lack of surprise

Making our children richer, or ourselves in a decade so, is important, yes. But not so important that it over rides our sense of what is fair and just now. What we individually think is fair and just varies of course: but as humans we do, most of us at least, psychopaths and politicians aside, have opinions on what such fairness is.

The findings from this paper would not have surprised Milton Friedman: he always used to insist that there were indeed things that had to be done and which could only be done by government. Laissez faire, for example the idea that anyone can just get on and make, produce, whatever they like, takes quite a lot of government to keep it going.

For it's necessary to defend, through the law, peoples' right to do just that. An absence of government, an absence of action to maintain that freedom leads to the protection rackets and thuggery that bedevil those trades which don't currently have such governmental protection: drugs and prostitution being obvious examples.

Similarly, it takes quite a lot of action to protect civil and political rights. That whole set-up of the criminal law, that habeas corpus stuff, trial by jury, no double jeopardy - these are not there to protect the criminals from their righteous dues. They are to protect the non-criminals from having their civil rights traduced by those in political power.

So far, so very liberal and even neo-liberal. But as above, this markets red in tooth and claw world conflicts with the desires of many for what they see as a more just world right now. Those economic and social rights which can be damaging to that future economic growth. And while I personally admire such as Sir John Cowperthwaite many don't share that view.

When appointed after WWII to go and sort out Hong Kong's economy it took him some good few months to actually get there, by which time he found it sorting itself out quite happily without him. He spent the next few decades making sure that no one tried to sort it out: he even forbade the collection of GDP statistics (let alone their publication) on the grounds that some damn fool would only try and do something with them.

Growing pains

It might shock some to find out that there is in fact a solution to this seeming incompatibility, between “fair” and “growing”. It lies in the statements of one Polly Toynbee.

No, no, don't worry, not in what she thinks nor even in what she thinks she's thinking. Rather in what she says, that we should all be more like Sweden, be more Nordic. For that is indeed the solution, to be more like the Nordics even if not in the way that Polly suggests.

Note that both Denmark and Sweden have very high levels of both economic and civil freedom. Oh, sure, there are near insane tax rates and so on, but underlying those socially democratic things there are what are really classically liberal economies humming away.

If you leave the tax part aside both are generally thought of as having more economic freedom than either the US or the UK. An example might be Sweden's reaction to Ford trying to sell Saab. Shrug, well, if no one wants to buy it, better close it down then: compare and contrast that to the reactions to GM or Rover.

What our World Bank paper allows us to do is work out why these places work: it isn't because those economic and social rights improve the performance of the economy. Rather, it's that with that free economy underneath those economic and social rights can be afforded: it's possible to have both the growth and the current “fairness”.

Which leads to what I consider a very interesting conclusion indeed: that those economic, social and cultural rights are not what ameliorates capitalism sufficiently that it then works. Rather, it's that if you desire those rights, think they are desirable in and of themselves, then you have to have a more capitalist, free market, structure to the economy to be able to afford those desirable rights.

So Polly is right, we should be more like Sweden - more economic and social freedom so that we can buy all the economic and social rights she wants. ®